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Thursday, November 6, 2008

Small Business Centers Offer Help to New and Established Firms

Small Business Development Centers are spread throughout the United States to help both new entrepreneurs start businesses and established businesses to flourish. The centers, which offer free consulting and training for nominal fees, are hosted by universities, colleges and state economic development agencies. The program was founded in 1979 and is funded in part by the Small Business Administration. The network of centers has seen its funding yo-yo over the years, but lawmakers and others recently have fortified the network with more money and confidence.

I spoke with ASBDC President and CEO Don Wilson, based in Burke, Va., about the study and what he sees on the small business horizon. Here are highlights from our interview:Small Business Blog: About 58 percent of the participants seeking more than five hours of counseling were established businesses versus just over 42 percent for pre-ventures. Does that trend surprise you and what kind of information are the established firms seeking vs. the newcomers?

Don Wilson: It varies, although you'd think that newcomers are always looking for money, SBA loans are generally for established businesses as banks don't want to loan to non-established businesses. But many people are coming to us to come up with a good solid business plan. They want to know 'How do I get this started?' and 'What am I going to need?' We help them with everything from licenses to marketing plans to understanding how to comply with tax rules and [environmental and health and safety] regulations.

An interesting change that's occurred is that we now get more established businesses seeking counseling than startups...We get a lot of repeat customers and many startups that came to us years ago are coming back.

Some people come to us looking for grants, but that's not something that we do. In these economic times, many people are coming [to us] to help them get their finances in order and to get help repairing their credit. For the established businesses, they might be seeking a new marketing plan to go national or international.

One of the biggest trends we've seen is that with credit so tight, people are coming to us to help them fill out their loan forms...People used to be able to do it themselves when credit was flowing, but now we help them a lot with loan packaging and using the right language.

SBB: SBDC long-term clients generated approximately $7.2 billion in sales and more than 73,000 full-time jobs as a result of the assistance they received, according to the report.Wilson: Our clients do much better than the average business. Part of it may be that we're dealing with people who are wise enough to know what they don't know -- so they go get help. An SBDC counselor may invest 60 to 100 hours in any specific business.

Our services also tend to be counter cyclical. When the economy is down, we see increases in the number of people we counsel. Counselors I've been talking to recently have seen an uptick in the number of clients.

A common issue for many of these people is that there have been a lot of small business owners who took equity out of their homes to launch a product line, but then they've seen a drop in home values. The whole issue of credit has become a bigger challenge.

SBB: When did the credit tightening and other problems begin? Do you see a trickle down from Wall Street?

Wilson: I think the base of the problems started two years ago or so. The [Federal Reserve] did a study last July that showed banks were tightening their lending to small firms. Over the last two to three months, an awful lot of small businesses have been seeing their credit lines being called. A lot of small businesses use their credit lines to purchase inventory and pay it back as they make the sales. Now many can't do that. Also, consumer spending is down and that affects all businesses whether in service or manufacturing. There is no question that Wall Street is hitting Main Street.

SBB: About 21 percent of all pre-venture clients received SBDC assistance for help in obtaining financing. Your clients raised an average of about $104,000 in SBA loans and about $82,000 from other sources of debt financing and $25,000 in equity financing.

Wilson: SBA had a real drop off in the number of loans it's affiliated with, but the size of the loans has climbed. We're a resource partner with the SBA. We're managed and overseen by the SBA. I think the relationship is better than ever because there's a lot of interaction. For example, we now bring the head of office at an SBDC to SBA board meetings.

SBB: How is your relationship with the SBA now?

Wilson: Even though this administration did not push the funding level that we thought was appropriate for SBDCs, we have an excellent relationship....But don't get me wrong, we disagree on things but we don't disagree in a disagreeable way....Our budget was flatlined for about eight years.

SBB: How did you manage to get more funding?

Wilson: We just kept bringing in all kinds of data that showed how effective SBDCs are. Congresswomen [Nydia] Velazquez (the New York Democrat who chairs the House Small Business Committee)...and we got tremendous support from [Senate Small Business and Entrepreneurship Committee Chairman] John Kerry (D-Mass.) and ranking Republican Olympia Snowe from Maine. We got $110 million for the program for 2007 and that should bring us up to the level where we used to be. Lawmakers began to see that we're doing a great job but were withering on the vine for lack of resources.

In the economy today with folks leaving their jobs and the national job loss - many of these people are going to look to self-employment and getting more money for us at this time is very timely.

SBB: What do many people not know about SBDCs?

Wilson: We spend very little on marketing, so a lot of people may not know about us. Our money is all invested in the counseling. But what most people don't know is how much we can help in a disaster situation. In 1999 there was a tremendous hurricane in North Carolina. We moved counselors and they lived there for six months. Eventually the state's governor turned disaster relief efforts over to the N.C. SBDC.

In 2001, after 9/11, many people were not going to work in midtown Manhattan...The hundreds of Chinese carryouts and other businesses were hurt. We did a tremendous job there and have definitive data that the loan approval rate for people who came to SBDCs for help in reconstructing their finances was far higher than the average applicant.

In all the years of disaster supplementals, the SBA has never asked for money for SBDCs, but when disaster hits they always come in and ask us to help. Our counselors volunteered, did it on their vacation and took non-paid leave. This year, in the big overall bill that Congress passed, there's actually $10 million for SBDCs to help with disaster relief.By Sharon McLoone